Non-retail pooled funds

Available vehicles

What are the main legal vehicles used to set up a non-retail fund? How are they formed?

A retail fund may take one of the following two forms or structures:

  • a contractual structure with no legal personality. This is the classic structure and requires that the fund be managed by a separate fund manager. The investors’ or participants’ interests in these funds are called units; or
  • a collective investment company endowed with legal personality. The incorporation of such entities is subject to the Portuguese Securities Exchange Commission's (CMVM) authorisation. They can be self-managed, in which case a minimum initial capital of €300,000 will be required, or managed by an appointed third party (ie, a duly authorised investment fund manager), in which case a minimum initial capital of €50,000 will be required. Participants in the collective investment company will hold shares.

 

Laws and regulations

What are the key laws and other sets of rules that govern non-retail funds?

The Undertakings for Collective Investment Law, enacted by Law No. 16/2015 of 24 February 2015 (the UCI Law), which implemented in Portugal Directive 2009/65/EC on undertakings for collective investment in transferable securities (UCITS) (the UCITS Directive), and Directive 2011/61/EU on alternative investment fund managers (AIFMD), as amended from time to time CMVM – Regime geral dos organismos de investimento coletivo – versão consolidada.

The Portuguese Securities Exchange Commission (CMVM) Regulation No. 2/2015 on Undertakings for Collective Investment, as amended from time to time, which sets forth more specific rules regarding certain aspects of the UCI Law CMVM – Regulamento da CMVM No. 2/2015.

The Portuguese Securities Code, enacted by Decree-Law No. 486/99 of 13 November 1999, as amended from time to time, which entered into force on 1 March 2000 CMVM – Código dos Valores Mobiliários.

Authorisation

Must non-retail funds be authorised or licensed to be established or marketed in your jurisdiction?

Yes.

Marketing

Who can market non-retail funds? To whom can they be marketed?

Fund managers can market non-retail funds. There are no limitations as to whom retail funds may be marketed. Both natural and legal persons may invest in the units or shares of a retail fund.

Ownership restrictions

Do investor-protection rules restrict ownership in non-retail funds to certain classes of investor?

No. However, the constitutional documents of the non-retail fund may establish that the fund will only be placed with professional investors or those of a certain class. In such cases, the distribution of the fund’s units or shares must comply with this restriction.

Managers and operators

Are there any special requirements that apply to managers or operators of non-retail funds?

The UCI Law establishes a framework similar to fund managers of retail and non-retail funds.

Therefore, the requirements applicable to the licensing and development of fund management are identical for the most part, save for a few provisions only applicable to fund managers managing certain types of funds, owing to their specific nature (eg, retail funds, non-financial assets funds or real estate funds).

Tax treatment

What is the tax treatment of non-retail funds? Are any exemptions available?

Non-retail funds are subject to corporate income tax (CIT) at the general corporate tax rate (currently set at 21 per cent). No municipal tax or state surtax will apply.

The taxable income of non-retail funds corresponds to the net profit assessed in accordance with their respective accounting standards. However, investment income, rents and capital gains (except when sourced in a tax haven) are disregarded for profit assessment purposes; on the other hand, expenses related to this type of income (including funding costs), as well as non-deductible expenses under the CIT code, and income and expenses relative to management fees and other commission earned by non-retail funds, are also disregarded for profit assessment purposes.

The tax losses of these funds shall become entitled to be carried forward for a period of five years. The income of non-retail funds is not subject to withholding tax.

Non-retail funds exclusively investing in money market instruments and bank deposits shall become subject to stamp duty calculated over their global net assets at the rate of 0.0025 per cent (per quarter), with the remaining non-retail funds being subject to a 0.0125 per cent rate (per quarter).

However, at the investor level, income tax exemptions may be applicable to non-resident investors.

In this respect, income derived from non-retail funds, including capital gains resulting from the redemption of units or their liquidation, shall be exempt from income tax provided that:

  • a maximum of 25 per cent of the share capital is not held, directly or indirectly, by Portuguese residents or by individuals resident in Portugal, except when the latter is resident in an EU member state or in a European Economic Area member state that is bound to cooperate with Portugal under an administrative cooperation arrangement in tax matters similar to the exchange of information schemes in relation to tax matters existing within the EU member states or in any country with which Portugal has a double tax treaty in force;
  • proof of non-residence in Portugal is provided in due time;
  • income is not paid or made available to accounts opened in the name of one or more account holders acting on behalf of one or more unidentified third parties, unless the relevant beneficial owners of the income are identified; and
  • investors are not domiciled in tax haven jurisdictions listed in Ministerial Order No. 150/2004 of 13 February 2004, as amended.

 

Non-residents that have failed to prove their non-residence on time may request a total or partial refund of the tax withheld during a two-year period (counted from the end of the year in which the event that generated the tax liability took place).

Moreover, income tax exemptions may be applicable to non-resident investors regarding non-retail funds that mainly invest in movable assets, or a reduced withholding tax rate of 10 per cent may be applicable to non-resident investors regarding non-retail funds that mainly invest in real estate assets.

In this respect, income derived from non-retail funds, including capital gains resulting from redemption of units or their liquidation, will benefit from income tax exemption or a reduced withholding tax rate, as the case may be.

For the purposes of this regime, income derived from non-retail funds that mainly acquire real estate assets, including capital gains from the sale or redemption of such units or from the liquidation of such funds, shall be classified as income derived from immovable property (as a rule, under a double tax treaty, the right to tax immovable property income is attributed to the source state).

Asset protection

Must the portfolio of assets of a non-retail fund be held by a separate local custodian? What regulations are in place to protect the fund’s assets?

The assets of a retail fund must be entrusted to a single depositary, which must be a certain type of financial institution.

A depositary must have at least €5 million in own funds and its registered office must be located in Portugal or in another EU member state, although in the latter case it must also have a branch in Portugal. A fund must have different entities as fund manager and as depositary. A depositary can also be an investment company authorised to provide registration and deposit of financial instruments services, subject to compliance with the own funds requirements set out in article 92 of Regulation 575/2013/EU and to possessing an adequate internal structure for such activity.

The depositary, like the management company, must act independently and exclusively in the interest of the fund’s investors.

Governance

What are the main governance requirements for a non-retail fund formed in your jurisdiction?

The retail fund must be managed by a licensed fund manager and will have a board of directors comprising at least two members.

Moreover, in accordance with Law No. 148/2015 of 9 September 2015 (the Auditing Supervision Framework), the fund manager shall also have an audit board comprising at least three members (the majority of whom must be considered independent) and a sole auditor.

The members of the fund manager’s board of directors and audit board must be previously authorised by the CMVM to take office, being subject to a thorough suitability assessment during this procedure.

Further, the fund manager must have several internal policies in place aimed at addressing the following:

  • the risk of its activity;
  • remuneration issues;
  • outsourcing;
  • internal control;
  • evaluation of the assets pertaining to the funds under management;
  • anti-money laundering;
  • record-keeping; and
  • selection of the members of the board of directors and audit board.
Reporting

What are the periodic reporting requirements for non-retail funds?

The fund manager must prepare and publish annual and biannual accounts, as applicable. These must be made available free of charge on request by investors.

The marketing entity must send or make available to investors a statement informing them of the number of units held by the investor in question and their value and the aggregate value of the investment. In addition to this information, the marketing entity may provide further information regarding the investor’s financial situation. For example, if the marketing entity is a bank and the investor is a client of that bank, it might provide the above information together with the investor’s bank statement.

Any information published pursuant to the requirements set out below is available to investors, usually through the CMVM’s information diffusion system (website). Moreover, the fund manager must publish and send the following to the CMVM:

  • the annual accounts within four months of the end of the financial year;
  • the biannual accounts, if applicable, within two months of the end of the relevant semester; and
  • an inventory of the fund’s asset portfolio, its global net value, any responsibilities not found in the balance sheet, and the number of units currently in circulation, on a monthly basis.

 

Lastly, the fund manager needs to provide CMVM with continuous regulatory reports on its activities and the funds under management, in accordance with CMVM's regulations.